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Financing Tools for Capital Projects

Marshall Public Schools

School Board Work Session

February 2, 2015

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Financing Tools Authorized for School Districts

• School Building Bonds

• Operating Referendums

• Capital Project Levy

• Alternative Facilities Bonds & Levy

• Capital Facilities Bonds

• Capital Notes

• Lease Purchase Financing

• Lease Levy

• Qualified Zone Academy Bonds

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Financing Tools Authorized for School Districts

• Today’s presentation includes background information on all of the tools which we believe the Marshall School District may consider using in the next year

• We have provided your administration with copies of a booklet which includes more detailed information on all of the tools listed on the previous slide

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School Building Bonds

• Voter approval required

• Projects in excess of $2 million require Review and Comment process with MDE

• Provides up front cash for project

• Can be used for any type of capital project costs related to both & facilities & equipment

• Issued for up to 30 years– Minimum length of 20 years (or average maturity of

12.5 years) to qualify for debt service equalization aid

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School Building Bonds (continued)

• Low interest rates

– General obligation bonds

– MN credit enhancement program (State guarantees payments on bonds)

• Debt service levy is spread on Net Tax Capacity (NTC)

• Elections can be held any date except those blacked out by statute

Operating Referendums

• Board may adopt resolution authorizing up to $300 per pupil without voter approval for maximum term of 5 years

• For additional authority, voter approval required and maximum term is 10 years

– Generally, one election per year on the general election day

– Specific ballot language dictated by statute

– Can include inflationary language

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Operating Referendums (continued)

• Used to finance operating costs as well as capital costs

• Revenue is “capped” at approximately $1,870 per pupil for 2015-16, with exceptions

• Sparsity districts • Districts that have been “grandfathered” at

higher dollar amounts• District’s FY 2015-16 authority is $300 per pupil

– $267.49 voter approved (net of $424 Local Optional Revenue)

– $32.51 board approved

• No debt issued

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Operating Referendums (continued)

• Equalization aid – three tiers

– First tier equalized at the highest level up to $300 per pupil; District receives 54% of authority from state aid

– Second tier equalized at a lesser degree from $300 to $760 per pupil; District is eligible for 21% state aid

– Third tier equalized to an even lesser degree above $760 per pupil; any authority in this tier would be 100% local levy for Marshall Public Schools

• Referendum levy is spread on Referendum Market Value (RMV)

– Seasonal recreational residential (cabins) and agricultural land and building do not pay

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Capital Project Levy

• Voter approval required

• No interest or borrowing costs

• Used to finance capital costs (e.g. technology, maintenance)

• Maximum length is ten years

• No limit on dollar amount

• No equalization aid

• Levy is spread on Net Tax Capacity (NTC)

– If District’s NTC increases, will generate more revenue and vice versa

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Alternative Facilities Bonds & Levy• No voter approval required• Bonds issued and/or annual pay-as-you-go levy• Full program (available to a small number of

districts)– Minimum of 1,850,000 square feet of space, with

average building age of 15 years or more, or 1,500,000 square feet of space and average building age of 35 years or more

• Limited program (all other districts)– Health & Safety qualifying projects, if project cost is

greater than $500,000 per site

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Alternative Facilities Bonds & Levy (continued)

• Multi-year plan must be completed, updated regularly and approved by MDE

– Full program districts – 10 year plan

– Limited program districts – 5 year plan

• Requires approval by Commissioner of Education

• Publication requirement – “Notice of Intent” to sell bonds or make an annual tax levy

• Low interest rates for bonds

– General obligation bonds

– State credit enhancement program

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Alternative Facilities Bonds & Levy (continued)

• Uses of funds– Deferred maintenance, health & safety, or

disabled access – depending on how District qualifies for program

• Cannot be used for new construction

• Debt service levy or pay-as-you-go levy spread on Net Tax Capacity

• District receives additional revenue to make the levy

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Capital Facilities Bonds

• No voter approval required; Board approves resolution & is required to publish a notice

– If 15% of registered voters submit a petition within 30 days, bonds cannot be sold without first holding a referendum

• Requires approval by Commissioner of Education

• Used for costs of improvements and repairs to buildings and sites

• Provides up front cash for projects; allows District to spread payments over a number of years

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Capital Facilities Bonds (continued)

• Revenue neutral – district does not receive new revenue to make bond payments

– Payments are made from operating capital or other general fund revenue

• Maximum length of bonds is fifteen years

• Bond payments limited to District’s annual operating capital revenue (about $860,000 for Marshall Public Schools)

• Low interest rates

– General obligation bonds

– State credit enhancement program

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Qualified Zone Academy Bonds (QZABs)

• Federal program – submit application to MDE to get approval/allocation– District submitted application to MDE in March 2014

• Funds can be used to rehabilitate, renovate, repair or provide equipment for a qualifying school

• Eligibility requirements– At least 35% of students at site qualify for free or

reduced lunch

– 10% contribution by private business partner(s) or individuals

– Education plan

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Qualified Zone Academy Bonds (continued)

• Must be issued using a debt instrument authorized under state law (e.g. alternative facilities bonds issued as QZABs)

• Low effective interest rates• Investors receive a annual credit on their federal

income taxes in lieu of interest • Maximum maturity is determined by formula in

federal regulations and is revised periodically• Only 2% of bond proceeds can be used for costs

of issuance

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Qualified Zone Academy Bonds (continued)

• Allocation process and status– Congress allocates a specific amount nationally each

year

– Federal government determines allocation to each state

– In December of 2014, Congress reauthorized program for 2014

– 2014 allocations by state have not yet been announced

– For 2011 through 2013, allocation for Minnesota was just under $5 million per year

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Potential Alternative Facilities Bonds• District asked us to prepare preliminary estimates for an

alternative facilities bond issue that would finance about $6.6 million in project costs for HVAC improvements

• Schedules we prepared are included on following slides– “Sources and Uses of Funds” table shows estimated

issuance costs and bond amounts for both conventional tax-exempt bonds and QZABs

– Payment schedule and tax impact schedule for tax-exempt bond

• Based on a “wrap-around” bond structure, with interest only for the first 9 years, and principal paid off after existing bonds are retired; we would be happy to discuss other potential bond structuring options

• If District received a QZAB allocation, tax impact would likely be similar, but payments in last 3 years would be lower

Marshall School District No. 413Estimated Sources and Uses of Funds for Potential Alternative Facilities Bonds

Type of Bonds Tax-Exempt QZABsNumber of Years 12 12Bond Issue Amount $6,705,000 $6,760,000

Sources of FundsPar Amount of Bonds $6,705,000 $6,760,000Estimated Investment Earnings * 8,279 8,281Total Sources $6,713,279 $6,768,281

Uses of FundsAllowance for Discount Bidding $33,525 $0Capitalized Interest 0 0Legal and Fiscal Costs# 47,905 135,200Net Available for Project Costs 6,631,849 6,633,081Total Uses $6,713,279 $6,768,281

* Estimated investment earnings are based on an average interest rate of 0.25% and

an average life of 6 months for investments.# Includes fees for placement agent, financial advisor, bond counsel, rating agency,

paying agent, and county certificates. Costs of issuance for QZABs are higher than for tax-exempt bonds; federal regulations limit the costs charged to the bond issue to 2%of the principal, as shown above. The district would be required to pay additionalissuance costs from other funds.

January 28, 2015

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Marshall Public Schools ISD No. 413Analysis of Possible Structure for Capital and Debt Levies

Principal Amount:Dated Date:Avg. Interest Rate:

Levy

Pay. Fiscal State Debt Net Tax Add'l. Debt Adjusted Adjusted State Net Tax

Year Year Bldg Bonds OPEB Debt Aid Excess 3 Levy Rate Principal Interest Excess 3 Levy 4

Debt Levy 4

Debt Aid Levy Rate2014 2015 17,472 12.3% 2,726,063 135,438 - (143,794) 2,717,707 15.55 2,717,707 - 2,717,707 15.55 2015 2016 18,400 5.3% 2,723,752 137,012 - (54,361) 2,806,403 15.25 - 120,690 5 - - 2,806,403 - 2,806,403 15.25 2016 2017 17,940 -2.5% 2,723,753 137,742 - (114,431) 2,747,064 15.31 - 181,035 - 190,087 2,937,150 - 2,937,150 16.37 2017 2018 17,940 0.0% 2,725,853 138,025 - (114,460) 2,749,418 15.33 - 181,035 - 190,087 2,939,505 - 2,939,505 16.39 2018 2019 17,940 0.0% 2,729,843 137,902 - (114,555) 2,753,189 15.35 - 181,035 (7,603) 182,483 2,935,672 - 2,935,672 16.36 2019 2020 17,940 0.0% 2,726,220 137,419 - (114,710) 2,748,929 15.32 - 181,035 (7,299) 182,787 2,931,716 - 2,931,716 16.34 2020 2021 17,940 0.0% 2,734,620 - - (114,546) 2,620,074 14.60 - 181,035 (7,311) 182,775 2,802,850 - 2,802,850 15.62 2021 2022 17,940 0.0% 2,728,530 - - (109,385) 2,619,145 14.60 - 181,035 (7,311) 182,776 2,801,921 - 2,801,921 15.62 2022 2023 17,940 0.0% 2,734,620 - - (109,141) 2,625,479 14.63 - 181,035 (7,311) 182,776 2,808,255 - 2,808,255 15.65 2023 2024 17,940 0.0% 2,730,788 - - (109,385) 2,621,403 14.61 - 181,035 (7,311) 182,776 2,804,178 - 2,804,178 15.63 2024 2025 17,940 0.0% - - - - - - 2,120,000 181,035 (7,311) 2,408,776 2,408,776 - 2,408,776 13.43 2025 2026 17,940 0.0% - - - - - - 2,260,000 123,795 (96,351) 2,406,634 2,406,634 - 2,406,634 13.41 2026 2027 17,940 0.0% - - - - - - 2,325,000 62,775 (96,265) 2,410,898 2,410,898 - 2,410,898 13.44 2027 2028 17,940 0.0% - - - - - - - - - - - - - - 2028 2029 17,940 0.0% - - - - - - - - - - - - - - 2029 2030 17,940 0.0% - - - - - - - - - - - - - - 2030 2031 17,940 0.0% - - - - - - - - - - - - - -

Totals 27,284,040 823,537 - (1,098,766) 27,008,810 6,705,000 1,936,575 (244,075) 8,702,854 35,711,665 - 35,711,665

1 changes shown above. All values include JOBZ property.

2 Initial debt service levies are set at 105 percent of the principal and interest payments during the next fiscal year. 3 Debt excess adjustment for Pay 2014 and 2015 are actual amounts. Subsequent year adjustments are estimated as 4% of the prior year's initial debt levy.4 The adjusted debt levy is the initial debt service levy less the debt excess adjustment.5 These estimates assume that the interest payments due during fiscal year 2016, estimated at $120,690, would be made from funds on hand or bond proceeds.

$6,705,000 Alternative FacilitiesBonds; Wrap Around Existing Debt

Proposed New Debt

January 28, 2015

The tax capacity value for taxes payable in 2014 is the final value provided by Lyon County, and the value for 2015 is a preliminary value provided by Lyon County. Estimates for later years are based on annual

($000s)

Existing Commitments

$6,705,000

Tax Capa-

city Value 1

6/1/20152.70%

12 Years

Combined Totals

Initial Debt Levies 2

Marshall Public Schools ISD No. 413Estimated Tax Rates for Capital and Debt Service LeviesExisting Commitments and Proposed New Debt

Date Prepared:

$6,705,000 Alternative FacilitiesBonds; Wrap Around Existing Debt

January 28, 2015

12 Years

-

2

4

6

8

10

12

14

16

18

20

Es

tim

ate

d T

ax

Ra

te

Year Taxes are Payable

Proposed New Debt

Existing Commitments

Marshall School District No. 413Analysis of Tax Impact for Potential 2015 Alternative Facilities Bonds

January 28, 2015

Bond Issue Amount $6,705,000Number of Years 12

Wraparound

Estimated Tax Rate* Payable 2016 without New Bonds 15.31% Payable 2016 with New Bonds 16.37%

Increase 1.06%

Estimated Estimated TaxType of Property Market Value Increase*

$50,000 $375,000 5

Residential 100,000 8Homestead 125,000 10

150,000 13200,000 19250,000 25300,000 31400,000 42500,000 53$100,000 $16

Commercial/ 250,000 45 Industrial 500,000 98

750,000 1511,000,000 2042,000,000 416$400,000 $24

Agricultural 600,000 34Homestead ** 800,000 45

1,000,000 551,500,000 82

Agricultural $5,000 $0.53Non-Homestead 6,000 0.64(dollars per acre) 7,000 0.74

8,000 0.859,000 0.95

*

** For agricultural homestead property, a value of $100,000 was assumed for the

house, garage and one acre.

The figures in the table are based on school district taxes for bonded debt only, and do not include tax levies for other purposes. Tax increases shown above are gross increases, not including the impact of the state Property Tax Refund ("Circuit Breaker") program. Many owners of homestead property will qualify for a refund, based on their income and total property taxes. This will decrease the net effect of the proposed bond issue for many property owners.

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(651) 697-8526

jzesbaugh@ehlers.com

Jodie Zesbaugh

Financial Advisor

Ehlers